Blog Post

It is worth bearing in mind that despite the property market being in the doldrums most of the last 6 years, property as with all other markets, goes in cycles.

If you think of the property investment cycle as seasons in the year, there is no doubt we have been in winter. But the daffodils have now bloomed. We are definitely in springtime as far as property investment goes and it’s heating up quickly.

Pent up demand from first time buyers, low interest rates on savings and rekindled interest from investors mean more people are looking to buy property. And this is particularly true of the British property market.

Britain is one of the most established property markets in the world, especially in terms of property investment financing. It is very different in terms of property supply and demand from other countries such as USA, Cyprus, Bulgaria and Dubai where the property prices were inflated because of demand caused by the perceived profits to be made (greed) and the sudden availability of easier borrowing rather than actual demand for the living accommodation.

The UK market is very different.Â I do not think there is any doubt more housing is required to house the UK population. No one disagrees that there is a massive shortfall in the amount of housing required to keep up with demand. Further, the rate at which new houses are being built falls far, far short of predicted requirements. The gap is widening every year.

It is interesting to note that every time The House Crowd buys a property – typically for about £45,000 – the rebuild costs for insurance purposes are upwards of £80,000 and often closer to £120,000. What that says to me is that if the cost of building new property is considerably more than existing stock (land values aren’t even taken into account in the example above). Common sense suggests that few people will buy a new build property, when they can get a similar sized property for half the amount. It is equally clear that developers aren’t going to build property unless they believe people will buy what they have to sell. And just to reiterate it there is a shortage of housing which increases demand for available property.

It’s a complex relationship but builders have started to build again and the price of old stock will be pulled up by the price of new builds as sellers realize they can achieve higher selling prices whilst still pricing competitively against new builds.

So there are definite signs that the property market is heating up. You may well have seen the news headlines about average property prices increasing at £1000 a month and prices spiraling – out of control. I wouldn’t believe the hype for one minute but there is undoubtedly upward price movement.

One factor for this is new investors putting their money into property as they are tired of the woeful returns provided by the banks and pension companies.

The new government incentives have also helped boost the market (artificially many might say).

But it is not so much the price of a property but the affordability factor that is the biggest influence in house prices. People’s income, the deposit required, the ratio income to borrowing permitted and interest rates all play a bigger role than the actual price tag. That is why all the Generation Rent talk about nobody being able to afford to buy any more is hogwash. If nobody can afford to buy the prices fall. The market corrects itself. The only place where that viewpoint holds any water is London where there are huge amounts of foreign buyers pushing up prices to a level ordinary working people cannot afford.

That may be good bad or dangerous (another property investment bubble?) depending on your point of view.

But in terms of achieving capital growth over a relatively short space of time (say the next 5 years), I believe there has never been a better time to invest in property. Warren Buffet recently said he would buy a couple of hundred thousand houses right now if the management of them wasn’t such a problem. Well that’s why the House Crowd was created. We can help you build a property portfolio with an equitable interest in a large number of properties (thus spreading our risk) without any management hassles at all.